Any review that calls the book in question “captivating” and “clear-eyed” and that describes its author as the “most consequential U.S. trade representative of the last 30 years” cannot be all bad, and Gordon Hanson’s review of my book, No Trade Is Free, is no exception. I admire his scholarship on the impact of import competition on American communities, which I cite in the book. I only wish he could further undock himself from academic rigidity and allow current global economic realities to challenge old dogma.

No Trade Is Free lays out a vision for U.S. trade policy and details its implementation during the Trump administration. I believe trade policy should help working-class Americans find and maintain good-paying jobs. But for decades, it has instead centered on price optimization, efficiency, and corporate profits. The result has been the loss of millions of jobs, the destruction of thousands of communities, and the accumulation of trillions of dollars of trade deficits. This policy has made the country weaker and poorer.

The book also raises the alarm about the threat that the Chinese Communist Party poses to the United States. China is an increasingly aggressive, totalitarian, and hostile state that believes it should be number one in the world. It intimidates the U.S. military in international waters and space and challenges American diplomats around the world. It steals U.S. technology, engages in continual espionage, funnels fentanyl past U.S. borders, and effectively funds two proxy wars against the United States—backing Russia’s efforts in Ukraine and providing oil revenues to Iran that end up with Hamas. Worst of all, China has for decades waged an economic war that pulls in trillions of dollars of American wealth through trade surpluses. The Trump administration took on this challenge and set U.S. relations with China on a new course.

EXISTENTIAL THREAT

Curiously, however, Hanson’s review barely mentions the China-related aspects of my book. Indeed, China’s alarming rise has nothing to do with free trade or such fine notions as comparative advantage. Hanson’s oversight is important because every economic theory must be judged by this dangerous twenty-first-century reality—and every policy must be measured against this existential threat.

Hanson also makes several incorrect claims about my book. Perhaps most unfairly, he alleges that I take “liberties in interpreting the history of U.S. trade policy.” He claims that I ignore the role Republicans have played in encouraging free trade, but I do not. I clearly state, for instance, that the leaders of both parties pushed for the North American Free Trade Agreement and for “most favored nation” treatment for China. The book actually agrees with its critic that, as he writes, “the era of hyperglobalization was a genuinely bipartisan creation.” Hanson claims I “bizarrely” suggest that U.S. trade policy took a radical turn in the 1990s. He ignores the fact that the signing of the North American Free Trade Agreement, the creation of the World Trade Organization, and the granting of permanent “most favored nation” status to China—the trifecta of globalism—all occurred in the span of eight years. Indeed, Hanson begins his review by suggesting that “the era of hyperglobalization started in 1995, with the creation of the World Trade Organization.” One might think that he agrees with my bizarre interpretation.

Hanson states that I believe trade agreements should be judged by their effect on the trade deficit alone, but as I write in No Trade Is Free, under Trump, “the goal was increasing the number of high-quality jobs.” Hanson criticizes me for wanting trade deals to increase exports but not imports. Yet that is exactly how every administration has sold trade deals to Congress and the public. If the objective was otherwise, why negotiate a deal? Any country can unilaterally increase imports. But of course, few do.

For decades, trade policy has centered on price optimization, efficiency, and corporate profits.

Hanson accuses me of neglecting the U.S. trade surplus in services, but the reality is those surpluses offset only a fifth of the $1.2 trillion goods deficit. They are important but insufficient to power the U.S. economy and create enough high-paying jobs for American workers. He says that the Reagan-era limits on Japanese car imports were a failure, but it was precisely because of this policy that Japanese car companies brought their manufacturing to the United States and now employ thousands of American workers.

Hanson agrees that raising tariffs will reduce imports, but he asserts that “they also tend to reduce exports, because factories then focus on making goods for domestic consumers.” Surely, that is only true if one assumes the United States has full employment and is operating at full industrial capacity. Neither of those conditions holds true. Tariffs could also lead to new manufacturing.

Hanson repeats the trope that Trump’s China tariffs increased prices, but the United States had less than two percent inflation during the president’s tenure. He also makes the free traders’ argument that the trade deficit expanded during the Trump years. In fact, before the COVID-19 pandemic, the deficit with the world was down in four of the previous quarters, and the deficit with China was down in the previous five straight quarters. But that all changed when the pandemic closed the economy and forced the release of trillions of dollars in stimulus. It takes time to right the ship, but the Trump administration had corrected its trajectory.

MORE THAN ECONOMICS

Hanson goes most astray, however, when he argues that focusing on the restoration of American manufacturing is misguided because “the United States has little comparative advantage in most areas of manufacturing.” Hanson contends that “the future of American prosperity lies in the service sector, not in the furnaces and assembly lines of the past.” But this is a false choice: the country can and should have both.

Comparative advantages are not necessarily inherent in a country, as he assumes. They can be created, usually through industrial policy, subsidies, and trade restrictions. South Korea is competitive when it comes to making steel, but it does not enjoy cheap power, iron ore, or other natural advantages in this sector. Its comparative advantage is entirely the result of government policy. The same can be said of Taiwan and semiconductors. The Taiwan Semiconductor Manufacturing Company today has a comparative advantage, but it was created by subsidies and tax breaks. The airplane manufacturer Airbus is very competitive, but that is entirely because four European countries got together, spent billions in subsidies, and created a world-class company. The same, of course, could be said historically about many manufacturing sectors in the United States, as well as in Germany, Japan, and the United Kingdom. Indeed, it is difficult to find an example of a great manufacturing economy that did not create much of its comparative advantage through state intervention.

Further, manufacturing is about more than economics. It is about the kind of country that Americans want. The allocation of scarce resources, price optimization, and efficiency—things that preoccupy economists—are not as important as issues of family stability, strong communities, income equity, and worker pride and satisfaction.

Shipping containers in Long Beach, California, April 2023 Mike Blake / Reuters

About two-thirds of American workers do not have a college degree. For many in this group, a manufacturing job, or one created by it, is a ticket to the middle class. These jobs generally pay better and offer more benefits than jobs in service sectors, such as health care, tourism, and hospitality. As Hanson himself notes, when manufacturing workers lose their jobs, “they tend to suffer a permanent decline in earnings relative to those who keep their positions,” and when enough manufacturing jobs vanish, “entire regions suffer.”

Maintaining a vigorous manufacturing sector is important for other reasons, too. First, there are obvious national security implications in relying on other countries, particularly hostile ones, for the United States’ defense and related needs. The pandemic offered a glimpse of these dangers. Once a war begins, it is too late to build manufacturing capacity.

Second, despite only accounting for around 11 percent of GDP, manufacturing drives 70 percent of American R & D investment; it employs as many scientists, engineers, and other so-called super-STEM workers as the much larger health-care industry and more than any other sector; and it accounts for 35 percent of annual increases in U.S. productivity. In fact, for every manufacturing job created, seven to 12 jobs are created elsewhere in the American economy. Manufacturing firms are also important customers for many of the high-value-added service providers economists so cherish.

Finally, let’s return to the question of China. The United States will struggle in a postindustrial world when its lethal adversary, bent on its demise, is the dominant manufacturer. Do the proponents of Hanson’s view really understand the nature of the threat China poses? These are the concerns that must shape a new economic theory. I appreciate Hanson’s review and hope that he and other top economists update economic theories to prioritize U.S. workers and communities and, most important, factor into their thinking the existential threat that is communist China.